Dion's Quarterly ETF Winners and Losers

Winners

Fear was in favor during the second quarter as investors fled the market. The resounding anxiety stemming from Europe's debt crisis, China's overheating real estate market and doubts about the strength of the broad global economic recovery provided the push necessary to power the VIX, and the exchange-traded notes related to the fear-based index, higher.

The iPath S&P 500 VIX Mid Term Futures ETN ( VXZ), while less popular than the short-term futures based VXX, boasted a strong quarter as well.

Investors fearing the market storm piled into long-term treasuries as well, pushing TLT to a top spot. During this three-month period, the fund's ascension has been impressive, breaking through previous 2010 highs and currently testing levels last seen during the opening months of 2009.

On the other side of the coin, UltraShort 20+ Year Treasury ProShares ( TBT) turned in one of the worst performances within the ETF industry during this period, dropping 27.1%.

If the headwinds that tested the markets in the second quarter continue into the third, TLT will likely remain an attractive fund for investors seeking a safe haven.

Although UNG has suffered through a fast and steady downturn since the start of the second half of 2008, in 2010, the fund has shown signs that it may, at last, be stabilizing.

Looking towards the third quarter of 2010, I feel that the natural gas industry will present an attractive investment opportunity. However, playing the fuel directly will be a difficult task. Weather and contango issues from previous years risk pressuring prices once again.

Losers

Spain's markets reeled in the second quarter as investors fled the debt-ridden European Union. EWP and the iShares MSCI Italy Index Fund ( EWI) track two nations which make-up the PIIGS, an acronym constructed from the European nations most susceptible to a sovereign debt crisis. Other ETFs designed to track eurozone nations, such as the iShares MSCI France Index Fund ( EWQ), the iShares MSCI Austria Investable Market Index Fund ( EWO) and the iShares MSCI EMU Index Fund ( EZU), also took heavy hits.

Greece remains the poster child for the European debt crisis. Currently, no official play exists for investors looking to play the troubled nation. However, in the most recent quarter, Claymore Shipping ETF ( SEA) once again set sail. Although SEA is designed to track the broad maritime industry, this fund has been touted as a proxy play on Greece, with the nation representing nearly 20% of its geographic exposure.

Concerns about Greece and the rest of Europe's debt issues have led other international leaders to focus their attention on their own issues related to sovereign debt. As countries around the world take steps to reign in their debt and cut back on spending, investors can expect subsidies relied upon by the alternative energy industry to be one of the first places to receive the ax.

TAN's future remains at risk heading into the start of Q3 and the fund could have further to fall. Investors should be very cautious of this and other alternative energy products in the near future.

The debt crisis in Europe was only one of the major themes helping to shape the second quarter of 2010. Another closely watched event was the massive Deepwater Horizon oil spill which has been wreaking havoc on the Gulf of Mexico for weeks. Images of tar balls and threatened wildlife have ignited rage across the nation and lead investors to flee companies directly related to the spill including British Petroleum ( BP), Transocean ( RIG), Halliburton ( HAL) and Anadarko ( APC).

The Gulf spill, however, was not the only factor leading to the oil industry's struggles in Q2. The price of crude also struggled as investors raised doubts about the global economic recovery.

China took steps to rein in its economy in Q2, including drastic steps to cool its overheating housing market. Decreased demand for basic materials from China put pressure on the broad base metal industry as well as the steel producers representing SLX's portfolio.

In the past I have applauded SLX's for its inclusion of iron ore producers along with steel makers. However, in the most recent three month period, these miners were not immune in Q2 either. Australia's government tipped off their troubles with its plan to implement a massive tax on mining profits.

At the time of publication, Dion Money Management owned GDX.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.